1031 exchanges, at least as we know them today, have been around since 1991. Most people in the real estate industry have heard of them and seem to have a good working grasp of how they work, and what the requirements are. Occasionally we get calls from someone who has not heard of a 1031 exchange... + continue reading

What is a 1031 Exchange?
People ask, “Why should I do a 1031 exchange?” I can answer this question in two words: "Financial Leveraging." By doing a 1031 exchange, the taxes you would have paid to the government are now working to earn you money.
A 1031 exchange allows a... + continue reading

In simple terms, a 1031 exchange moves the gain from the sale of an old investment property into the purchase of a new investment property. By moving the gain into a new property, you defer paying tax on that gain into the future.For example, suppose Jane Doe sells her rental house for $200,... + continue reading

1031 is a section of the tax code that allows you to sell your investment property (almost any property other than your personal residence), buy a new investment property and defer all of the capital gains taxes from the old property to the new one.This does three things for you:you don't... + continue reading

If you own business or investment property, you may be able to save thousands of dollars by exchanging your assets instead of selling them.
A like-kind exchange under Internal Revenue Code Section 1031 allows you to defer the taxes on capital gains by exchanging rather than selling. This tax... + continue reading

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WHAT IS A 1031 EXCHANGE?

When selling a business or investment property, and a gain would be realized, Internal Revenue Code Section 1031 provides for an exception, allowing for tax on the gain to be postponed if the proceeds are invested, in a "like-kind" property exchange. Gain deferred in this like-kind exchange under IRC Section 1031 would be tax-deferred, but not tax-free.

1031 Exchange Definition

You might be wondering, how does a 1031 exchange work? There are certian rules to consider. A properly structured 1031 exchange allows an investor to sell a property, to reinvest the proceeds in a new property and to defer all capital gain taxes. IRC Section 1031 (a)(1) states:

"No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment."

To understand the protection a 1031 exchange offers, consider the following example for investors:

An investor has a $200,000 capital gain and incurs a tax liability of approximately $70,000 in combined taxes (depreciation recapture, federal and state capital gain taxes) when the property is sold. Only $130,000 remains to reinvest in another real estate property.

If we assume a 25% down payment and a 75% loan-to-value ratio, the seller would only be able to purchase a property worth $520,000.

If the same investor chose to do a 1031 exchange, however, the entire $200,000 of equity would be able to reinvested in the purchase of $800,000 in real estate, with the same down payment and loan-to-value ratios as above.

Do you see the power of the 1031 exchange? What makes us 1031 Exchange Experts? Years of experience, and walking client after client through the process. Feel free to contact our office today for professional assistance with your 1031 exchange.

Featured Articles

1031 exchanges, at least as we know them today, have been around since 1991. Most people in the real estate industry have heard of them and seem to have a good working grasp of how they work, and what the requirements are. Occasionally we get calls from someone who has not heard of a 1031 exchange, or has no clue what the rules are. So now would... + continue reading

This Week's TEE-Shot

If the buyer of your property wants you to carry financing on the sale, the owner carry note will be taxable in a 1031 exchange unless you read this article first.
It explains how in... + continue reading

1031Basics

1031 exchanges, at least as we know them today, have been around since 1991. Most people in the real estate industry have heard of them and seem to have a good working grasp of how they work, and... + continue reading

1031News

Prior to 1986, taxpayers bought real estate for their tax losses as much as for their investment potential. I remember those days and it seemed that in many cases the investor was only... + continue reading

Gary Gorman

Gary Gorman has over 40 years of real estate tax experience. He received his BS degree in Accounting from Mankato State University in Mankato, Minnesota in 1972. He received his CPA certificate from the State of Minnesota in 1978. He has over 10 Years of Big 6 CPA firm experience where he served as a tax manager with Price Waterhouse & Company.